Thursday, March 19, 1998Last modified at 2:18 a.m. on Thursday, March 19, 1998

Economists: Fed report shows uneasiness

Board survey calls pressures on product prices 'eerily calm'

WASHINGTON (AP) - Despite a decline in export sales to Asia, the U.S. economy is thriving in all regions and labor remains in short supply - so much so that the Federal Reserve is finding the absence of increased inflation eerie.

"Taut labor markets continue to hamper business activity in a variety of ways," the central bank said Wednesday in its "beige book" survey. "The supply of entry-level and skilled workers ... appears to be insufficient."

The Fed noted that "just about every district reports that exports of many goods to Asia are dropping." But, at least so far, that hasn't made a big dent in the wage pressures that were the Fed's biggest worry before the Asian economic crisis developed last fall.

One of the 12 district banks contributing to the report, Boston, said temporary help agencies have offered wage increases of as much as 15 percent. The St. Louis bank said United Parcel Service can't find enough workers to staff a major expansion in the area.

Nevertheless, the Asian situation is combining with strong competition and productivity growth in the United States to restrain prices paid by U.S. consumers.

"Pressures on product prices remain eerily calm," the report said.

Economists who reviewed the report, which was based on information collected before March 9, detected some uneasiness at the central bank but not enough to trigger a pre-emptive interest-rate move against a possible acceleration in inflation.

"There's a sense of people (at the Fed) getting uncomfortable and wondering if there are going to be price pressures down the road that aren't there now," said economist Robert Dederick of Northern Trust Co. in Chicago. "They're worried about what happens on the other side of the Asian shock."

Still, he and other analysts predicted the Fed's policy-making committee would vote to leave interest rates alone when it meets March 31.

"The Fed is conflicted," said economist David Wyss of DRI-McGraw Hill in Lexington, Mass. "They think this economy is too hot, but at the same time they know Asia is sitting out there and there is no inflation that they can point to."

Fed policy-makers haven't touched short-term interest rates since March 1997, when they nudged the benchmark overnight rate on loans between banks up by a quarter percentage point to 5.5 percent.

Manufacturing is the first sector of the economy to bear the brunt of Asia's turmoil. Yet, the beige book found "industrial activity is on the rise in most parts of the country, with orders and production up."